Early loan repayments

Potter49

I have a personal loan of about £3000.
The interest rate is 14.36.
I pay £111.00 a month.
If i repaid £1000 of the loan, would it be best to reduce the term or reduce the monthly payments and keep the length of term the same?

Grateful if your advice.

Gonk1967

As far as I'm aware, they won't reduce the monthly payment, read the agreement. However, paying £1,000 off will reduce the term by about a year (if its a 3 year term) and possibly save you £250 (ish) in interest,

Martico

https://forums.moneysavingexpert.com/discussion/comment/82177411#Comment_82177411

Plenty of loans allow you to reduce either the term or the instalment amounts. But yes, check the terms. I've got one at the moment that I'm overpaying and have chosen to reduce the instalments. I've not crunched the numbers, but I can't imagine there's much (if any) difference in how much I'll end up paying.

My rationale? Each month I pay a lower instalment and can add the excess (plus a bit more) to pay it down that little bit more the following month

dumpster_fire2025

https://forums.moneysavingexpert.com/discussion/comment/82177599#Comment_82177599

Conversely you could reduce the term and overpay by whatever you would be overpaying over and above the previous monthly payment if you had reduced the monthly repayments.

If you are going to at least continue to make the initally agreed monthly repayments when you opt to reduce the monthly payments then its six of one half a dozen of the other, although reducing the monthly repayment does give you a way to reduce your repayments if the need arises without hitting your credit file. The flip side of this is that you need to be disciplined. However, in the grand sceeme of things, the difference in interest (even on long terms such as with mortgages) isn't massive.